The Limits to Complexity

This is an essay I just wrote this week exploring the relationship between peak complexity and the global economy. It attempts to analyze mainstream economic policy prescriptions in the context of diminishing returns on complexity and our unsunstainable economic systems. The essay is somewhat lengthy (14 pages - 12pt, single spaced in word), but it should be a pretty easy read for people somewhat familiar with economic/financial concepts, which I'm sure includes most people on this site. It is pretty abstract/theoretical at times when discussing complex systems, so I apologize to anyone who doesn't like that kind of stuff but decides to read it anyway. Here is an excerpt from the first section:

Quote:

The current U.S. administration has its eyes dead set on more fiscal stimulus and/or monetary easing to counter the ever-growing threat of severe deflation on the horizon. Despite the trillions added to our Treasury and Fed’s balance sheets in 2008-09, the 2010 Q2 GDP number is anemic (1.6%) even when it can be trusted as accurate.[1] Most of the ever-optimistic (and late-to-reality) American investment banks have significantly revised their estimates for 2010 H2 GDP down to around 2%, while most serious analysts agree it will be closer to a negative print.[2] Existing and New Homes sales in July 2010 have experienced record declines in the absence of government subsidies (~27% and ~35%).[3][4] Unemployment remains significantly higher than reported, as U-6 hovers at 17% and shows no signs of improving (includes workers who have given up looking for jobs – can we blame them when there are 5 workers for every job?).[5] Close to 40 million Americans are on food stamps, 5 million on emergency unemployment benefits and 500,000 recently filed initial jobless claims in one week. Equity outflows from institutional investing firms have continued for months unabated and have totaled over $50 billion year-to-date.[6] Confidence indicators have been gradually deteriorating among consumers and businesses, and that does not bode well for the largest pyramid scheme in human history.

On the other side of the American political divide, conservative Republicans who claim to identify with tea party activists argue for fiscal austerity and less government regulation/intervention in the economy. Leaving aside the glaring hypocrisy of these politicians (many of them contributed greatly to a doubling of the federal debt and expansion of subsidies/entitlements from 2000-08), there are still several other troubling aspects to their alleged views. One of these aspects is the gross injustice of asking a majority of the population to forego promised entitlements and economic relief after we already decided to bail out a small minority of the population. Two wrongs don’t make a right, but neither does one wrong and a humiliating slap to the collective face. Another is the fact that many of these politicians have no idea what their policies really entail for the economy. As explained in sections below, it’s not as simple as cutting deficits, letting the free market take over and watching the flowers bloom as the sun shines on a new day in America. There will be a chaotic descent into economic depression and a need for governments to help mitigate the damages and promote structural reforms to the debt-based, fossil fuel economy. Speaking of fossil fuels, these politicians and pundits also naively ignore the critical issues of climate change and peak oil production or assume unregulated free(-falling) markets can eventually solve these issues on their own, without much negative impact to the economy.

The main critique of this essay is that the viewpoints described above have a fundamentally flawed perspective on our current economic predicament. Whether it’s the left or the right, the free marketers or the socialists or many of the shades in between, the mainstream consensus is one of desperate hope for a rapid return to continuous economic growth, low unemployment, relatively cheap finance and rapid consumption of natural resources. More generally, there is an insatiable lust for maintaining complexity in our modern systems of economic exchange and social organization. Of course, this critique is not true of everyone in the mainstream camps described above, but I find it telling that we rarely (almost never) hear the word “complexity” or phrase “peak” anything mentioned in their bitter debates.

If your interest is somewhat peeked and you feel that you would like to read more, please go ahead and check out the full essay that I have attached to this post. Any feedback is appreciated, especially if I got facts or data wrong, but criticism of the analysis is of course welcome as well. For anyone who reads, thanks for your time.

Thanks to everyone who has taken the time to read or will in the future.

I decided to post this essay on a blog site for easier access to people on facebook and what not. I also may write a few more posts or link to important information on the site. Just now I posted on Stoneleigh's amazing interview with Jim Puplava at Financial Sense, which everyone should take the time to check out! It fits in well with the essay as she spends a good deal of time talking about peak complexity and diminishing returns to complexity.

Ashvinp, that was a most excellent essay. I could quibble with a minor point here or there if I felt pressed to, but I think that would largely be an exercise in academic masturbation. Instead, I believe it should just stand on its own merits, which are quite good.

There is a significant work in archaeology that ties in with this that I think you would find most enlightening -- The Collapse of Complex Societies by Joseph A. Tainter -- primarily because it expands on the cycle of "Growth, conservation, release, reorganization" as it played out in prior societies (the Romans, Mayans and Chacoans).

Essentially, Tainter's argument is this: Societies become complex by capitalizing on boosts to their energy base (energy taken in the broadest, not narrowest, possible sense). The high rate of return they receive on energy invested (e.g. the earliest Roman conquests bringing waves of gold back to Rome, thus paying for the conquest AND paying for even more legions) results in the society locking into that way of doing things. As time goes on, the society begins to receive diminishing return on its investment (e.g. when Rome had to spend money administering the new parts of its empire, and the quick wave of initial plunder turned into the slower return from mining resources). However, even in spite of the diminishing returns, the society finds itself locked into this pattern psychologically, largely due to the fact that its early success caused it to become enshrined as the central myth in the society's cultural narrative. Finally, the society reaches the point that further investment actually gives negative returns (e.g the late 4th and 5th centuries of Rome, when people in the outlying provinces actually welcomed the barbarian invaders in many instances because they provided protection at a fraction of the Romans' cost). This is the "collapse" of the society, which Tainter characterizes not at all in a negative way, but rather a society necessarily reducing to a lower level of complexity and energy usage.

Ashvinp, that was a most excellent essay. I could quibble with a minor point here or there if I felt pressed to, but I think that would largely be an exercise in academic masturbation. Instead, I believe it should just stand on its own merits, which are quite good.

Concur! If only X% of the population (and X here IMO is a relatively small number: 4-8%?) were thoughtful, smart, and engaged enough to ruminate on the issues and write essays like this, methinks we'd already have solutions raining down -- and the many (seemingly) intractable issues facing our civilization would be melting like cotton candy in the rain.

Or, if you prefer, we'd be kicking the issues' collective @$$ up and down the street and bashing their heads in with a garbage can lid.

I have reads parts of Tainter's book excerpted in other articles/essays, but never the whole thing so thanks for reminding me to get it. His work also fits in well with an article Stoneleigh wrote at the TOD Canada in 2007 called "Entropy and Empire" - http://canada.theoildrum.com/node/2381

It basically reviews THomas Homer-Dixon's book "The Upside of Down" which analyzes the emergence and fall of the Roman Empire in terms of extracing energy surpluses from its imperial terriroties in the form of food. Pretty great stuff.